Adoption of IFRS
Fisher (James) & Sons PLC
18 August 2005
JAMES FISHER AND SONS
PUBLIC LIMITED COMPANY
Adoption of International Financial Reporting Standards
1. Key Points
• No impact on trading cash flows
• Reported pre tax profit for 2004 increases by £1.023m to £14.114m
• Reported net assets at 31 December 2004 decreases to £83.331m from
£91.041m
• Gearing increased from 40% to 44% as a result of reduction in total
equity due primarily to inclusion of Pension Fund deficit.
2. Introduction
In accordance with European Regulations for listed entities, James Fisher & Sons
PLC is required to adopt International Financial Reporting Standards ('IFRS')
for its consolidated accounts for accounting periods commencing 1 January 2005.
The Group's first published interim statements under IFRS will be the results
for the six months to 30 June 2005. As already announced these will be published
on 23 August 2005.
In advance of the publication of future results on an IFRS basis, we set out
below an unaudited restatement of financial statements which were previously
reported under UK Generally Accepted Accounting Practice ('UK GAAP'), together
with a summary and explanations of the major changes. These adjustments are
explained in detail in later sections of this document.
The major accounting changes which are required by the introduction of IFRS are:
• Pensions - The Group's obligations in respect of deficits arising in the
Group's Shore Staff and Dockworkers defined benefit pension schemes are
recognised on the balance sheet from 1 January 2004.
• Goodwill will no longer be amortised through the income statement and is
instead included at cost and is subject to an annual impairment review. The
amortisation for the year ended 31 December 2004 is reversed as part of the
IFRS restatement.
• The fair value of share-based payments is recorded as an expense in the
income statement.
There are also significant changes in the presentation of the financial
statements including the presentation of the results of equity accounted joint
ventures.
The Group has decided not to adopt retrospectively IAS 32 and IAS 39 in respect
of financial instruments and will apply these from 1 January 2005. The principal
effects of applying these standards are as follows:
The 3.5% cumulative preference shares will be reclassified as long term debt.
Changes in the fair value of certain types of hedging instruments will be held
on the balance sheet and recorded in a hedging reserve until the related
transaction occurs or ceases to be expected to take place at which point they
are transferred to the income statement.
The accounts of our 25% owned joint venture, Foreland Holdings Limited, have
been restated using equity accounting on an IFRS basis. There have been no
changes to the results of the joint venture arising from the restatement.
3. Basis of preparation
The unaudited financial information in the statements set out below has been
prepared in accordance with the International Accounting Standards ('IAS') and
International Financial Reporting Standards ('IFRS') expected to apply to the
Group at 31 December 2005. Certain standards are still subject to change. In
particular the European Commission has not yet endorsed the amendment to IAS 19
- Employee Benefits, which the Group has adopted in respect of the treatment of
actuarial gains and losses. As a result there may be further changes when the
Group prepares its first full year IFRS financial statements.
A document containing a more detailed reconciliation of the restatement of the
financial statements referred to in this document together with the Group's
accounting policies which have been fully revised in accordance with IFRS, can
be found on the Group's website at www.james-fisher.co.uk in the investor
relations section.
4. Overall impact of changes
The tables below summarise the major impacts of IFRS. Further details are given
in section 6.
In order to comply with the requirements on adoption of IFRS for the comparative
period to be restated onto the same basis as the current year, the transitional
net assets at 1 January 2004 have been restated in addition to the financial
information for the period ended 30 June 2004 and the year ended 31 December
2004.
4.1 Income Statement
Unaudited Unaudited
Ref 30 June 2004 31 December 2004
£'000 £'000
Profit before tax - UK GAAP 6,608 13,091
Goodwill (IFRS3) 6.2 457 915
Share-based payments (IFRS2) 6.6 162 169
Tax on investment in joint
ventures (IAS 31) 6.7 (27) (61)
-------- --------
Profit before tax - IFRS
basis 7,200 14,114
======== ========
The IFRS adjustments result in related tax adjustments, which together with further
adjustments to the tax charge arising under the provisions of IAS 12 are
shown in section 6.5.
4.2 Earnings per share
Six months to 30 June 2004 Year ended 31 December 2004
earnings shares EPS earnings shares EPS
£'000 No £'000 No
Basic EPS
UK GAAP basis 5,727 48,079,850 11.91p 11,196 48,261,182 23.20p
Adjustments
Goodwill 457 915
share-based
payments 162 169
Taxation (235) (300)
-------- -------
IFRS basis 6,111 12.71p 11,980 24.82p
Diluted*
UK GAAP 5,727 49,465,777 11.58p 11,196 48,866,810 22.91p
basis
Adjustments
Goodwill 457 915
share-based
payments 162 169
Taxation (235) (300)
-------- -------
IFRS basis 6,111 12.35p 11,980 24.52p
* Dilution arises from the exercise of share
options and LTIP awards.
4.3 Net assets
Unaudited Unaudited Unaudited
Ref 1 January 2004 30 June 2004 31 December 2004
£'000 £'000 £'000
Net Assets -
UK GAAP 83,254 87,449 91,041
Pensions (IAS
19) 6.1 (13,200) (12,100) (12,800)
Goodwill (IFRS
3) 6.2 - 457 915
Goodwill (IAS
21) 6.3 - - 24
Dividend
recognition
(IAS 10) 6.4 2,068 1,333 2,408
Taxation (IAS
12) 6.5 2,163 1,867 1,743
---------- --------- -----------
Net Assets -
IFRS basis 74,285 79,006 83,331
========== ========= ===========
4.4 Cash Flow
IFRS accounting adjustments have no impact on the group's actual cash flows.
Under IAS cash equivalents are defined as including short term deposits maturing
within 3 months. Consequently the Group's short term cash deposits will no
longer be shown separately in the cash flow statement.
5.Transitional arrangements
In general a company is required to determine its IFRS accounting policies and
apply them retrospectively as if they had always been in place. There are
however certain exemptions to this general transition requirement, some of which
are optional, which are set out in IFRS 1. The Group has adopted the following
exemptions in preparing its transitional IFRS statements:
• Business combinations (IFRS 3), the Group has elected not to restate
business combinations which took place prior to 1 January 2004, the
transition date to IFRS.
• IAS 19 - Employee Benefits, requires surpluses and deficits in defined
benefit pension schemes to be recognised on the balance sheet with separate
recognition of the operating and financing costs of the schemes within the
income statement. Of the various options available the Group has chosen to
recognise the deficit arising in the pension schemes at the date of
transition directly in reserves. Future actuarial gains and losses which
arise in the schemes will be recognised in the statement of recognised
income and expense. The option is permitted by an amendment to IAS 19 which
has yet to be endorsed by the European Commission and hence this policy may
be subject to change.
• In applying the provisions of IFRS 2 - Share based payments, the group
has adopted the exemption to apply this standard only to awards granted
after 7 November 2002 and vesting after 31 December 2003. No charge is
recognised in respect of awards granted prior to that date.
• The Group has taken advantage of the exemption available under IFRS to
'zero' the foreign currency translation reserve at transition date.
• IAS 32 and IAS 39 in respect of financial instruments will be applied
prospectively from 1 January 2005. The group will not therefore recognise
the fair value of hedging derivatives and financial instruments in its IFRS
comparatives and will reclassify the 3.5% cumulative preference shares from
equity to long term debt on 1 January 2005.
6.Impact of changes in accounting policies
6.1 Pensions
IAS 19 - Employee benefits, requires that the Group's obligations to fund its
defined benefit pension schemes be recognised in the financial statements. This
requires the inclusion of the pension deficits arising in respect of the Shore
Staff and Dockworkers defined benefit schemes on the balance sheet and separate
recognition of the operating and financing costs of the scheme within the income
statement. There are several options available for the recognition of actuarial
gains and losses. The Group has adopted the method permitted by the recent
amendment to IAS 19 and will recognise any further variations arising in a
particular period in full in the statement of recognised income and expense. As
noted above this amendment has yet to be endorsed by the European Commission and
so this policy may be subject to change.
These accounting treatments do not affect the cash funding of the schemes.
The impact of the changes can be summarised as follows:
Income statement
Unaudited Unaudited
30 June 2004 31 December 2004
£'000 £'000
Pension charge
under UK GAAP 400 800
Current service
costs (200) (500)
Interest costs (950) (1,900)
Expected return
on assets 750 1,600
-------- --------
Impact on Profit - -
before tax ======== ========
Balance sheet
Unaudited Unaudited Unaudited
1 January 2004 30 June 2004 31 December
2004
£'000 £'000 £'000
Deficits at
date of
transition (13,200) (13,200) (13,200)
Pension costs
under IFRS - (400) (800)
Contributions
paid - 400 800
Actuarial gains
& losses - 1,100 400
--------- -------- ---------
Deficit
reported in
balance sheet (13,200) (12,100) (12,800)
========= ======== =========
6.2 Goodwill and business combinations
Under IFRS 3 - Business Combinations - goodwill is not amortised but must be
tested annually for impairment. Following the requirements of IFRS 1 - First
time adoption of IFRS - goodwill amortisation ceased from 1 January 2004 with
the value at that date being adopted as the fair value of goodwill. The Group
has also elected to apply the exemption available under IFRS 1 to apply IFRS 3
prospectively from the transition date. The impact on the Group's financial
statements of this policy is that all goodwill previously amortised in the year
ended 31 December 2004 has been written back to the balance sheet and income
statement.
6.3 Goodwill and accounting for foreign currencies.
Under IAS 21 - The Effects of Changes in Foreign Exchange Rates - where an
entity has previously accounted for goodwill arising on the acquisition of a
foreign operation as being an asset of the entity and therefore denominated in
the currency of the entity, such goodwill must now be treated as being the asset
of the acquired foreign operation. As a result this goodwill must be treated as
being denominated in a foreign currency and translated into the Group's
functional currency; Sterling. As noted above the Group has decided to adopt the
exemptions under IFRS in respect of applying IFRS 3 prospectively. IFRS 1 also
allows this aspect of IAS 21 to be applied prospectively and as a result the
restatement made only relates to the acquisition of Reanco Team AS on 7 December
2004.
6.4 Dividend recognition
Under IAS10 - Events After the Balance Sheet Date - dividends are not recognised
until they are declared. The final and interim dividends declared after the end
of the relevant accounting period have therefore been reversed, resulting in an
increase in net assets at the end of each accounting period.
Dividends will no longer be shown as appropriations on the face of the income
statement but instead will be shown within the analysis of movements on
reserves.
6.5 Taxation
The changes to the Group's tax position can be summarised as follows:
Unaudited Unaudited Unaudited
1 January 2004 30 June 2004 31 December
2004
£'000 £'000 £'000
Deferred
taxation 2,163 1,969 1,743
Corporation tax - (102) -
--------- ------- ------------
Decrease in
group tax
position 2,163 1,867 1,743
========= ======= ============
The adjustment to the corporation tax charge arises from the use of estimates of
the full year tax rate used at the interim stage.
As a result of the application of IAS 12 in relation to deferred tax, there has
been a significant change in the deferred tax provision arising partly from
changes in calculation rules applied to assets and liabilities previously
recognised under UK GAAP, and partly from the recognition of items under IFRS
not previously recognised under UK GAAP. These include share-based payments and
the deficits on the Group's defined benefit schemes which were reported under UK
GAAP under FRS 17 for disclosure purposes only.
The impact of the changes outlined above are as follows:
Unaudited Unaudited Unaudited
1 January 2004 30 June 2004 31 December 2004
£'000 £'000 £'000
Deferred tax
liability under
UK GAAP (200) (261) (287)
Impact of IAS 12 on assets and
liabilities
recognised
under UK GAAP 103 130 (184)
Relating to fair value adjustments
on the
acquisition of
Remote Marine
Systems Limited - - (65)
Relating to recognition of pension
schemes
deficits 2,002 1,823 1,882
Relating to recognition of
share-based
payments 58 16 45
-------- -------- ------------
Deferred tax
asset under
IFRS 1,963 1,708 1,391
======== ======== ============
Deferred tax assets and liabilities are presented net as they relate to the same
tax authority. The adjustment in relation to the acquisition of Remote Marine
Systems relates to the fair value adjustment made to the carrying value of
freehold land and buildings at acquisition. This adjustment is included in
goodwill. Deferred tax is calculated on the difference between the carrying
value of an asset or liability in the accounts of the Group and its taxable
value ( tax base). Application of IFRS has resulted in changes in the value of
the tax base of some items from its UK GAAP basis resulting in adjustments to
the deferred tax liability in respect of certain assets and liabilities already
recognised under UK GAAP.
6.6 Share-based payments
IFRS 2 - Share-Based Payments, requires that the Group calculate the fair value
at the date of grant of awards of share options made to directors and employees.
The fair value is then amortised in the income statement over the vesting period
of the options with a corresponding credit to equity.
These requirements apply to all grants of shares made after 7 November 2002 and
vesting after 31 December 2003. IFRS does not contain any equivalent of UITF 38
- Accounting for ESOP Trusts. Amounts in relation to options over shares held in
the Group's employee share ownership trust previously expensed to the income
statement under UITF 17 - Employee Share Schemes, have therefore been removed
from the income statement with an equivalent restatement of reserves.
The impact of the changes can be summarised as follows:
Income Statement
Unaudited Unaudited
30 June 2004 31 December
2004
£'000 £'000
Share based payments under UK
GAAP 264 458
Share based payment cost under
IFRS 2 (102) (289)
-------- --------
Adjustments to income statement 162 169
======== ========
The amounts charged to the Income statement are reinstated in the Group's
reserves
6.7 Results of joint ventures
The requirements of IFRS relating to the disclosure of the results of joint
ventures on the face of the income statement are substantially different to UK
GAAP. The results for joint ventures are now shown as a single entry which
represents the post tax result. Further analysis is available in the notes to
the accounts. There has not been any change to the results of the joint ventures
which are attributable to the Group.
7.1 Restated Income Statement
Unaudited Unaudited
30 June 2004 31 December 2004
£'000 £'000
Group revenue 39,058 78,753
Cost of sales (28,916) (59,433)
-------- ---------
Gross profit 10,142 19,320
Administrative expenses
General (2,380) (4,874)
-------- ---------
--------
Profit from operations before
ship disposals 7,762 14,446
(Loss)/profit on ship disposals (52) 475
-------- ---------
---------
Profit from operations 7,710 14,921
Finance costs
-------- ---------
Finance income (revenue) 153 330
Finance costs (1,254) (2,511)
Exchange gain on loan conversion 8 155
-------- ---------
(1,093) (2,026)
Share of results of joint
venture 583 1,219
-------- ---------
Profit on continuing activities
before taxation 7,200 14,114
Taxation (1,087) (2,130)
-------- ---------
Profit attributable to equity
holders 6,113 11,984
======== =========
7.2 Consolidated statement of recognised income and expense
Unaudited Unaudited
30 June 2004 31 December 2004
£'000 £'000
Exchange Differences on translation of foreign
operations
Currency translation differences 578 (126)
Net investment hedge (759) 303
Actuarial gains on defined
benefit schemes 1,100 400
Tax on items taken directly to
equity* (61) (120)
-------- --------
Net income recognised directly
in equity 858 457
Profit for the period 6,113 11,984
-------- --------
Total recognised income for the
period 6,971 12,441
======== ========
* relates to defined benefit schemes
7.3 Restated Balance Sheet
Unaudited Unaudited Unaudited
1 January 30 June 31 December
2004 2004 2004
£'000 £'000 £'000
ASSETS
Non current assets
Goodwill 17,397 17,466 21,254
Property, plant
and equipment 114,455 106,630 103,091
Investment in
joint venture 1,591 2,175 1,810
Other
Investments 1,157 1,157 1,157
Deferred income
tax assets 1,963 1,708 1,391
-------- -------- ------------
136,563 129,136 128,703
Current assets
Inventories 2,377 1,872 4,028
Trade & other
receivables 18,895 11,520 14,901
Cash and short
term deposits 5,455 8,410 10,045
-------- -------- ------------
26,727 21,802 28,974
-------- -------- ------------
-------- -------- ------------
TOTAL ASSETS 163,290 150,938 157,677
======== ======== ============
EQUITY AND LIABILITIES
Capital and
reserves
Called up share
capital 12,211 12,267 12,305
Non equity -
cumulative
preference
shares 100 100 100
Share premium 23,558 23,750 23,810
Treasury Shares (971) (1,501) (1,212)
Other reserves - (181) 177
Profit and loss
reserves 39,387 44,571 48,151
-------- -------- ------------
Total equity 74,285 79,006 83,331
-------- -------- ------------
Non current liabilities
Trade and other
payables - - 14
Retirement
benefit
obligations 13,200 12,100 12,800
Interest-bearing
loans and
borrowings 51,633 36,449 38,472
-------- -------- ------------
64,833 48,549 51,286
-------- -------- ------------
Current liabilities
Trade and other
payables 13,221 12,277 13,280
Corporate tax
payable 1,277 1,419 1,601
Interest-bearing
loans and
borrowings 9,674 9,687 8,179
-------- -------- ------------
24,172 23,383 23,060
-------- -------- ------------
-------- -------- ------------
TOTAL
LIABILITIES 89,005 71,932 74,346
-------- -------- ------------
-------- -------- ------------
TOTAL EQUITY
AND LIABILITIES 163,290 150,938 157,677
======== ======== ============
7.4 Restated Cash Flow Statement
Unaudited Unaudited
30 June 2004 31 December 2004
£'000 £'000
Operating activities
Profit from Operations 7,710 14,921
Adjustments for:
Depreciation 4,110 8,259
Profit on sale of fixed assets (72) (59)
Loss/(profit) on ship disposals 52 (475)
Income tax expense (751) (1,583)
Increase in trade and other
receivables (680) (2,697)
Decrease/(Increase) in stocks 393 (150)
Decrease in trade and other
payables (421) (790)
Share based compensation 102 289
----------- ----------
Cash flows from operating
activities 10,443 17,715
=========== ==========
Investing activities
Dividends from joint venture
undertakings - 1,000
Proceeds from the sale of plant
and equipment 1,568 4,966
Interest received 124 314
Acquisition of subsidiaries, net
of cash acquired (69) (6,250)
Acquisition of property, plant
and equipment (1,463) (3,649)
Loans to joint ventures repaid - 225
Refund of payment to acquire
tangible fixed asset 3,851 3,851
Sale of shipbuilding contracts 7,293 7,293
----------- ----------
Cash flows from investing
activities 11,304 7,750
=========== ==========
Financing activities
Proceeds from the issue of share
capital 248 346
Preference dividend paid (2) (4)
Interest paid (1,255) (2,482)
Proceeds from other non-current
borrowings 1,206 12,574
Purchase less sales of own
shares by ESOP (530) (616)
Repayment of borrowings (16,377) (27,409)
Dividends paid (2,090) (3,410)
----------- ----------
Cash flows from financing
activities (18,800) (21,001)
=========== ==========
Net increase in cash and cash
equivalents 2,947 4,464
Cash and cash equivalents at 1
January 2004 5,455 5,455
Net foreign exchange difference 8 126
----------- ----------
Cash and cash equivalents at
period end 8,410 10,045
=========== ==========
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